A multiple-factor decision analysis framework for manufacturing outsourcing

The competitiveness of the global market and availability of multiple outsourcing options have greatly increased the complexity of making 'good' outsourcing decisions. Improving the decision-making process when faced with a complex decision situation requires a systematic decision-making framework. We propose such a framework for making strategic manufacturing outsourcing decisions that benefits from prominent decision analysis tools. We envision a multiple factor outsourcing decision model and specifically advocate the use of: 1) value-focused thinking to identify the outsourcing objectives; 2) a combination of an influence diagram and a decision tree to model the decision situation; 3) the cumulative prospect theory as an alternative to traditional utility theory for modelling the risk behaviour of the decision maker; 4) the prospect stochastic dominance to establish pair-wise dominance between outsourcing choices. We have developed a procedure for dividing the outsourcing choices into dominated and non-dominated sets, and rank ordering the elements of non-dominated set to identify the best strategy.